The Fed addresses reverse repo
30 August 2013 New York
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The US Federal Reserve has suggested establishing a fixed-rate, full-allotment overnight reverse repurchase agreement facility as an additional tool for managing money market interest rates.
In the minutes of a Federal Open Market committee, which was attended by chairmen Ben Bernanke and William Dudley, among others, it was declared that the Manager of the System Open Market Account reported on developments in domestic and foreign financial markets as well as the system open market operations during the period since the committee met on 18 June 2013.
By unanimous vote, the committee ratified the Open Market desk’s domestic transactions over the inter-meeting period.
There were no intervention operations in foreign currencies for the system’s account over the intermeeting period. In support of the committee’s longer-run planning for improvements in the implementation of monetary policy, the desk report also included a briefing on the potential for establishing a fixed-rate, full-allotment over- night reverse repurchase agreement facility as an additional tool for managing money market interest rates.
The presentation suggested that such a facility would allow the committee to offer an overnight, risk-free instrument directly to a relatively wide range of market participants, perhaps complementing the payment of interest on excess reserves held by banks and thereby improving the committee’s ability to keep short-term market rates at levels that it deems appropriate to achieve its macroeconomic objectives.
The staff also identified several key issues that would require consideration in the design of such a facility, including the choice of the appropriate facility interest rate and possible additions to the range of eligible counterparties.
In general, meeting participants indicated that they thought such a facility could prove helpful; they asked the staff to undertake further work to examine how it might operate and how it might affect short-term funding markets.
A number of them emphasised that their interest in having the staff conduct additional research reflected an ongoing effort to improve the technical execution of policy and did not signal any change in the committee’s views about policy going forward.
In the minutes of a Federal Open Market committee, which was attended by chairmen Ben Bernanke and William Dudley, among others, it was declared that the Manager of the System Open Market Account reported on developments in domestic and foreign financial markets as well as the system open market operations during the period since the committee met on 18 June 2013.
By unanimous vote, the committee ratified the Open Market desk’s domestic transactions over the inter-meeting period.
There were no intervention operations in foreign currencies for the system’s account over the intermeeting period. In support of the committee’s longer-run planning for improvements in the implementation of monetary policy, the desk report also included a briefing on the potential for establishing a fixed-rate, full-allotment over- night reverse repurchase agreement facility as an additional tool for managing money market interest rates.
The presentation suggested that such a facility would allow the committee to offer an overnight, risk-free instrument directly to a relatively wide range of market participants, perhaps complementing the payment of interest on excess reserves held by banks and thereby improving the committee’s ability to keep short-term market rates at levels that it deems appropriate to achieve its macroeconomic objectives.
The staff also identified several key issues that would require consideration in the design of such a facility, including the choice of the appropriate facility interest rate and possible additions to the range of eligible counterparties.
In general, meeting participants indicated that they thought such a facility could prove helpful; they asked the staff to undertake further work to examine how it might operate and how it might affect short-term funding markets.
A number of them emphasised that their interest in having the staff conduct additional research reflected an ongoing effort to improve the technical execution of policy and did not signal any change in the committee’s views about policy going forward.
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